Benjamin Graham: The Father of Value Investing (Part1)

Benjamin Graham is a well-known economist and professional investor. He is often called «the father of value investing». Currently, he is widely known because Warren Buffett, who in his time, studied under the Graham’s supervision at Columbia University, New York, constantly cites him. Baffet asserts that it was Graham who taught him wise investment. He describes him as a man who had the greatest influence on his life after his father.

Benjamin Graham was born on May 8, 1894 in London. when Graham was one year old, his family immigrated to the United States, where his father opened a small company engaged in import of porcelain, ceramics and antiques from Germany and Austria.

However, when Benjamin was nine years old his father died and the family was plunged into poverty. Being brought up in poverty in New York influenced Benjamin Graham, because to survive on the street he had to use more his mental abilities, not physical.

Benjamin Graham mentioned, “that it was the years of poverty that developed in my nature a serious attitude to money and the willingness to work hard for a small salary and extreme economy in all expenses”.

In 1914 he received a bachelor’s degree in Columbia University, New York. After graduating from Columbia University Benjamin Graham was offered teaching positions, but he refused because he had to support his family, and was hired to work at Newburger, Henderson and Loeb on Wall Street for the position of an apprentice in the bond department.

At the age of 26, Benjamin Graham became one of the partners in Newburger, Henderson and Loeb. Now, besides his salary, he received additional 2.5% of the profits.

Graham had already started to understand the principle, which later shared with his disciples: the more ridiculous the market behaves, the more opportunities a professional investor has.

Graham’s investment funds

At the age of 29, Benjamin Graham founded his first independent venture – Grahar Corporation, which began operations on June 1, 1923. The name was made up of the names of Graham and Louis Harris, one of the main investors. Benjamin Graham was able to attract about $ 500 000to the fund. He was not the main shareholder, but controlled investment policy of the company.

In 1925, Graham, along with Jerome Newman, his childhood friend’s brother, founded Graham Newman Investment Fund. After losing more than half of the funds in the early years of the Great Depression, his company was able to remain buoyant, rejecting more aggressive and risky transactions. The average annual rate of return of the company was about 17%. during the period from 1929 to 1956 when Graham retired.

Benjamin Graham – investor and writer

In 1934 “Security Analysis” was published, a book written by Benjamin Graham co-authored with David Dodd. “Security Analysis” is still considered the “bible” for investors and traders of the world, it explains the principles of “value” investing, based on the use of fundamental indicators in evaluating shares. Graham and Dodd also introduced the concept of “intrinsic value” for the first time.

In the book “The Intelligent Investor” published in 1949, Benjamin Graham from the perspective of a professional investor explained how a rational approach allows outperforming the market. He also showed what principles should investors and traders use, and how to determine that stocks were undervalued. Warren Buffett considers Benjamin Graham’s “The Intelligent Investor” the best book on investment ever written.

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